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Whynot

Is this a conflict of interest

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I just heard something that sounded a bit strange. I don’t have any more information. This is what I think I heard:

Because their agency has a contract with the prime contractor, the prime contractor is separately offering to the individuals of that agency that are using their service, a special discount of the contractor’s other personal consumer services for the individual’s private personal commercial use.

Is there a conflict of interest? I think it is OK so long as information is not being used inappropriately by the prime contractor to target these individuals. This also reminds me a little about individuals being able to keep their frequent flyer miles when they travel for the agency.

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Interesting, it would have to be on the government’s side. Maybe a few steps removed from the actual individual. Say a government manager orders the service from the prime contract for the entire department knowing that the employees will get this additional discount. And also assume, the manager may not have ordered the service if this extra off contract benefit wasn’t there.

 

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I think you're focusing in the wrong area - rather than the subject of "conflict of interest" I'd focus on the ethics requirements pertaining to "gifts."  See 5 CFR §§ 2635.201-2635.205, specifically the definition of gifts (https://www.law.cornell.edu/cfr/text/5/2635.203)

Quote

(b) Gift includes any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value. It includes services as well as gifts of training, transportation, local travel, lodgings and meals, whether provided in-kind, by purchase of a ticket, payment in advance, or reimbursement after the expense has been incurred. It does not include:

(1) Modest items of food and refreshments, such as soft drinks, coffee and donuts, offered other than as part of a meal;

(2) Greeting cards and items with little intrinsic value, such as plaques, certificates, and trophies, which are intended solely for presentation;

(3) Loans from banks and other financial institutions on terms generally available to the public;

(4) Opportunities and benefits, including favorable rates and commercial discounts, available to the public or to a class consisting of all Government employees or all uniformed military personnel, whether or not restricted on the basis of geographic considerations;

(5) Rewards and prizes given to competitors in contests or events, including random drawings, open to the public unless the employee's entry into the contest or event is required as part of his official duties;

(6) Pension and other benefits resulting from continued participation in an employee welfare and benefits plan maintained by a former employer;

(7) Anything which is paid for by the Government or secured by the Government under Government contract;

(8) Any gift accepted by the Government under specific statutory authority, including:

(i) Travel, subsistence, and related expenses accepted by an agency under the authority of 31 U.S.C. 1353 in connection with an employee's attendance at a meeting or similar function relating to his official duties which takes place away from his duty station. The agency's acceptance must be in accordance with the implementing regulations at 41 CFR part 304-1; and

(ii) Other gifts provided in-kind which have been accepted by an agency under its agency gift acceptance statute; or

(9) Anything for which market value is paid by the employee.

From reading the brief scenario and the definition of gift, the discount does not seem to meet the exclusion in paragraph (4).  At that point, you should look to the general standards and exceptions (https://www.law.cornell.edu/cfr/text/5/part-2635/subpart-B).  

If you're a member of that office or know someone who is, I'd recommend contacting your agency's ethics official and initiating CYA procedures ASAP.

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Discounts can be offered to all federal employees or the entire military, but the discount offer cannot discriminate based on rank, grade, status, etc. On that note, if the discount offer is limited to federal employees of the agency client of the prime contractor (prohibited source), it will raise some eyebrows. See 5 CFR 2635.204, available at:

https://www.law.cornell.edu/cfr/text/5/2635.204

"(c) Discounts and similar benefits. In addition to those opportunities and benefits excluded from the definition of a gift by § 2635.203(b)(4), an employee may accept:

(1) Reduced membership or other fees for participation in organization activities offered to all Government employees or all uniformed military personnel by professional organizations if the only restrictions on membership relate to professional qualifications; and

(2) Opportunities and benefits, including favorable rates and commercial discounts not precluded by paragraph (c)(3) of this section:

(i) Offered to members of a group or class in which membership is unrelated to Government employment;

(ii) Offered to members of an organization, such as an employees' association or agency credit union, in which membership is related to Government employment if the same offer is broadly available to large segments of the public through organizations of similar size; or

(iii) Offered by a person who is not a prohibited source to any group or class that is not defined in a manner that specifically discriminates among Government employees on the basis of type of official responsibility or on a basis that favors those of higher rank or rate of pay; provided, however, that

(3) An employee may not accept for personal use any benefit to which the Government is entitled as the result of an expenditure of Government funds.

Example 1:

An employee of the Consumer Product Safety Commission may accept a discount of $50 on a microwave oven offered by the manufacturer to all members of the CPSC employees' association. Even though the CPSC is currently conducting studies on the safety of microwave ovens, the $50 discount is a standard offer that the manufacturer has made broadly available through a number of similar organizations to large segments of the public.

Example 2:

An Assistant Secretary may not accept a local country club's offer of membership to all members of Department Secretariats which includes a waiver of its $5,000 membership initiation fee. Even though the country club is not a prohibited source, the offer discriminates in favor of higher ranking officials.

Example 3:

The administrative officer for a district office of the Immigration and Naturalization Service has signed an INS order to purchase 50 boxes of photocopy paper from a supplier whose literature advertises that it will give a free briefcase to anyone who purchases 50 or more boxes. Because the paper was purchased with INS funds, the administrative officer cannot keep the briefcase which, if claimed and received, is Government property."

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This reminds me of a story from my past. We had a COR that used to go golfing with some of the contractor employees he oversaw. Each member of the group would put money into a pot that would go to whoever won the round. Wouldn't you know it, the COR was such a good golfer he would win every time!

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6 hours ago, Whynot said:

Because their agency has a contract with the prime contractor, the prime contractor is separately offering to the individuals of that agency that are using their service, a special discount of the contractor’s other personal consumer services for the individual’s private personal commercial use.

As far as I'm concerned, that's a gratuity. If I ran a contracting office, and a firm that had a contract with my office set something up like that, I'd have their ass.

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I would ask the Contractor to offer that same discount to all Federal Government employees.  If they agree, then an ethics issue does not exist.  It is customary for companies offer all federal employees discounts.  A certain insurance company represented by Pepe's archnemisis comes to mind.

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1 hour ago, metteec said:

I would ask the Contractor to offer that same discount to all Federal Government employees.  If they agree, then an ethics issue does not exist.  It is customary for companies offer all federal employees discounts.  A certain insurance company represented by Pepe's archnemisis comes to mind.

metteec:

Why would an ethics issue not exist?

Do you think Americans would agree who were not Federal employees and who would not get the discount, even though it's their money that would be used to pay the contractor that is giving the discounts to Federal employees? Why shouldn't all Americans get the "discount"?

Please give us an argument in support of your conclusion that no ethics issue would exist.

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Vern, as Matthew stated, the citation is 5 CFR §§ 2635.201-2635.205 (b)(4):

Quote

"[A] gift... does not include... opportunities and benefits, including favorable rates and commercial discounts, available to... a class consisting of all Government employees or all uniformed military personnel, whether or not restricted on the basis of geographic considerations."

I dare not speak for the thoughts of all my fellow Americans, yet it is a common commercial practice to offer discounts any one that is a Federal Employee.  In fact, GovExec offers a webpage dedicated to such discounts:  http://www.govexec.com/federal-news/2013/10/gimme-my-discount/29165/.  One of the best kept secrets is that hotels, including some outside of the United States, will extend to government workers and military personnel the government rate for personal travel.  Commercial firms like to target government workers because they represent a stable source of business, with decent salaries and uncanny job security.  I see little difference to businesses that target veterans, retirees or first-time homebuyers. 

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Jason and metteec

I think it is one thing for a company to offer a discount as an impersonal, general business policy and without respect to any contractual relationship. I think it's another when there is a contractual relationship. The OP wrote:

On 11/10/2016 at 9:33 AM, Whynot said:

Because their agency has a contract with the prime contractor, the prime contractor is separately offering to the individuals of that agency that are using their service, a special discount of the contractor’s other personal consumer services for the individual’s private personal commercial use.

Emphasis added. Why do you think the contractor is offering that discount?

Then metteec said:

22 hours ago, metteec said:

I would ask the Contractor to offer that same discount to all Federal Government employees. 

So he would bargain for the discount.

And you guys don't see anything wrong about that?

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I agree with Vern.  If the discount is bargained for or contingent on a contractual relationship with the Government, it's wrong.

Bargaining for the discount would violate the General Principles in 5 CFR §§ 2635.101 "Basic obligation of public service," specifically paragraph 4 which states:

Quote

An employee shall not, expected as permitted by subpart B of this part, solicit or accept any gift or other item of monetary value from any person or entity seeking official action from, doing business with, or conducting activities regulated by the employee's agency, or whose interests may be substantially affected by the performance or nonperformance of the employee's duties.

You could also make an argument that it would also violate paragraph 7 which states:

Quote

Employees shall not use public office for private gain.

 

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Matt, paragraph (b)(4) of paragraph 4 excludes opportunities and benefits to an entire class of government employees.  Therefore, a discount to all federal employees is NOT a gift, and does not violate paragraph 4. 

Regarding paragraph 7, it depends on how you interpret “private gain.”  I was unable to find any legal definition for private gain.  The dictionary definition of private gain is an increase of wealth for only one particular person or group of people.  While you could argue that based upon the definition, a benefit to only government employees falls under a benefit to only a “group of people,” but that group would be huge (millions of people).

I think the scope of a government employee-wide discount is so huge that it would not be a private gain.  Once those affected by the discount becomes large enough, it is no longer a private gain.  For example, what if the firm instead offered a discount for all D.C. citizens?  You could try to read that as being a private gain because it would apply to only a group of people.  However, by interpreting paragraph 7 in context with paragraph 4, the intent was that once the discount applies to a large enough class of people, it no longer becomes a prohibited practice.

In the immediate case, there is no indication that the OP solicited the discount.  The business offered the discount on its own volition, and after it already received the contract.  What would be wrong with a response such as, “thanks, but agency policies prohibit us from accepting a discount that applies to the agency.  However, 5 CFR §§ 2635.101(b)(4) states… Would all government employees, regardless their agency, be able to receive the discount?” 

On the other hand, I do see an issue of negotiating a discount for all government employees conditioned upon receiving a contract.  We have a fiduciary responsibility to the taxpayer to achieve the best value to the government.  Government employee discounts contingent upon contract award creates the appearance that the Contractor might factor those discounts in its offer and not represent the best value.  But a discount offered not contingent upon a contract, and offered freely to all federal employees?  That frequently happens and widely accepted.

Regardless, it is always best to consult with your agency’s ethics official. 

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29 minutes ago, metteec said:

Government employee discounts contingent upon contract award creates the appearance that the Contractor might factor those discounts in its offer and not represent the best value.

I don't believe best value is the concern.

“Best value” means the expected outcome of an acquisition that, in the Government’s estimation, provides the greatest overall benefit in response to the requirement.

To me, the issue is satisfying the principles of maintaining the public’s trust and fulfilling public policy objectives. (See FAR 1.102)

See also FAR 3.101-2:

As a rule, no Government employee may solicit or accept, directly or indirectly, any gratuity, gift, favor, entertainment, loan, or anything of monetary value from anyone who (a) has or is seeking to obtain Government business with the employee’s agency, (b) conducts activities that are regulated by the employee’s agency, or (c) has interests that may be substantially affected by the performance or nonperformance of the employee’s official duties. Certain limited exceptions are authorized in agency regulations.

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Jason, nice summary in your previous post. 

Concerning the Home Use Program, to my knowledge, DOD started that practice with its Enterprise Software Initiative (ESI) in 2002.  ESI consolidated the procurement of thousands of software products under a single software umbrella with multiple software providers.  It offered home use licenses for several of those products to DOD employees.  Again, to my point, offering government employees discounts or benefits is routine, a standard commercial practice, and widely accepted.  We should not throw those DOD contracting officers in jail.

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51 minutes ago, Jason Lent said:

Does this mean the Microsoft Home Use Program is an ethical claptrap?

Who established that program and what are the particulars? (Are they governed by the FAR System; any approved deviations, or exceptions?)

Be aware of common fallacies in reasoning (e.g. hasty generalization, appeal to ignorance, faulty analogy, etc.).

Assuming that because two things appear alike in some known respects, that they are alike in other unknown respects may lead to the wrong conclusions.

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Mettec,

Your analysis ignores the second part of the restriction: "or other item of monetary value" as well as paragraph 7 "employees shall not use public office for private gain."  Do discounts have monetary value?  Does asking a contractor to extend a discount to all Federal employees so one (or an agency) can take advantage of it result in private gain?

You and Jason (conveniently) ignore the particulars of this situation: the contractor is only offering the discount to a specific agency.  Barring any interference, the contractor is unlikely to change their behavior.  Mettec's proposed solution was to take the proactive step of asking the contractor to extend the discount to all Federal employees.  That action, in my opinion, is unethical (see above).

A more sound/ethical alternative would be to formally notify the contractor that the current discount for the agency's individuals is inappropriate IAW...(everything provided above)...then allow the contractor to make an independent decision on what to do.  As I see it, they'd have two options: (1) to withdraw the discounts entirely or (2) extend discounts to all military or government officials...but asking/encouraging the contractor to do the latter so the agency can continue to use the discounts would be an abuse of one's official position.

1 hour ago, Jason Lent said:

Does this mean the Microsoft Home Use Program is an ethical claptrap?

Is the Home Use Program a free offering from Microsoft or does the Government pay for home use licenses for Government employees?  I don't know the answer to that question, but this is an important distinction with a difference.

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24 minutes ago, Jason Lent said:

I read your argument as to why the discount being extended to all appropriate employees is unethical and it doesn't necessarily follow that extending the discount to all Government employees would be improper; I think the too-narrow-to-speculate details would come into play.

Jason,

I still think you're missing the point (apologies if I wasn't clear enough previously).  The objection raised was in reference to requesting the contractor extend a discount to all government employees - not whether or not discounts for all federal employees (and accepting them) are ethical/unethical.

 

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2 hours ago, Jason Lent said:

The HUP is provided by Microsoft, and is provided as part of "Software Assurance", and would only be provided to Government (or any other qualifying Volume Licensing Customer) employees so long as the Government (or that employer) has an Enterprise Licensing Agreement in place. 

I'll keep my eyes peeled for any fallacies. ;)

Clarification: Software Assurance entitles the Home Use Program not the Enterprise Licensing Agreement. According to Microsoft, Home Use Program is a Software Assurance benefit available to Microsoft volume licensing customers [including government] with active Software Assurance coverage on their Office applications.

Soliciting gratuities from prohibited sources is generally improper under FAR. (Limiting the thoughts to 5 C.F.R. or 'asking for gifts' misses our overarching responsibility.)

Question: Do you think that an awarded Enterprise License Agreement (ELA) to Microsoft which includes Software Assurance (SA), and entitles government civilian and uniformed personnel to the Home Use Program is an appropriate comparison to the discussion at-hand? If not, do you think any fallacies apply to the claptrap you presented? I believe that most attempts to answer your question would rely on fallacies … as would any comparison for purposes of this discussion.

Here is a link to some FAQs on the Home Use Program: http://www.doncio.navy.mil/ContentView.aspx?id=849; and http://www.microsofthup.com/hupus/faq.aspx?culture=en-US

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